Part 1: Best practices for small businesses planning a financial roadmap

This is the first post in a three-part series from our friends at Decimal, the experts in automating and outsourcing bookkeeping and back-office functions.

A financial roadmap is essential for small businesses. A thoughtful and carefully constructed plan will provide a clear view of your business’s financial health and identify where improvements can be made for growth. Getting started, however, can seem like a Herculean task when your business is just getting started or if your team is small.  

To make the process a little easier, we’re going to highlight five best practices to follow while you’re planning, and this blog post will get you started with the first one: finding your three financial support systems.

  1. Tax support

  2. Strategic advisory

  3. Accounting operations

Each of these core functions requires unique and different skill sets. Many businesses fall into the trap of a “one size fits all” approach, but the challenge with this is that no company can optimally resource all three of these functions without forfeiting quality in one or more areas.

Tax support

Every business is required to file taxes. The traditional CPA firm is built for this specific need. Their partners and even junior partners focus on tax, tax law and tax strategy as a core competency. These same skills can translate well to audit work as well. The volume of information needed to understand tax law and strategy is never ending.

Your tax provider should focus on employee tax needs and compliance, sales tax filings and strategy, and most importantly annual tax filings. A good tax advisor will also include guidance around tax benefits that your business can take advantage of throughout the year and into the future to support growth.

Tax related work is the greatest revenue generator for CPA firms. That is why they focus their teams and top resources on their tax practice and not on areas like financial modeling or accounting operations (i.e., bookkeeping). In many cases the same CPA firm that is charging you monthly to do your bookkeeping is also going to charge you to clean up the financials so you can file your taxes. The resources and skill sets are misaligned for this type of work.

Even within tax, there are subsets of groups with specific focus areas that can help to improve your bottom line. One key example is R&D tax credits. There are many firms that focus solely on R&D tax credits and only receive payment if you receive a credit. This is one obvious example of why specializing and finding the right partners is so critical to business success.

Strategic advisory

The role of strategic advisor normally falls to the fractional CFO or controller. As your business grows there is a great deal of forward-looking modeling and analysis needed to create things like your budget, revenue forecast, headcount planning, and in some cases capacity planning or job costing. Each of these requires a skill set unique to finance experts with experience creating and maintaining these models. Making sure that you find a CFO or controller who has actual experience working inside companies is important too.

One other area that will require constant evaluation as your business grows is that of price analysis and planning. Understanding how you should price your goods or services is a constant evolution. Ensuring you are achieving the right margins to support growth and scale is paramount to ongoing success.

Financial analysis spans across your business. These models can help identify where you are over-investing or under-investing in your business. For example, you may have a marketing contractor that you are paying $2,000 per month to run marketing campaigns while you are also paying $1,000 per month in advertising spend. If your advertising spend is leading to 50 leads a month while your marketing contractor is driving five, what's the better investment? It can be hard to step back and look at your business in this way. It’s even harder to constantly analyze every aspect to ensure you are operating efficiently. That is why the strategic advisor is a critical role in growing and scaling businesses.

Accounting operations

Everyone needs accounting operations—the ability to pay bills, get paid and track it all. In fact, you can’t do your taxes or forecast ahead without good financial data from accounting operations.

Accounting operations are the behind-the-scenes operations that keep everything in your business running. They are the financial language of your business.

Great bookkeepers understand the difference between bookkeeping for tax purposes and streamlined accounting operations that make it easier to run a business and make good financial decisions. It’s either easy to pay your bills, pay your people and get paid or it’s harder and takes longer than it should.

Once accounting operations are streamlined, then comes the strategic bookkeeping element. You either bookkeep for taxes or to understand the business on a month-to-month basis. The greatest difference between the two can be found in your chart of accounts. The chart of accounts essentially creates “folders” for you to book certain types of transactions. For example you could have a “Catch All” account that is called Marketing. Without good data that's broken out well, you have to make general assumptions that can negatively impact your business.

Tracking all transactions is important to every business. Getting these transactions reconciled and categorized to the right buckets is what makes a business successful. Great bookkeepers will focus not only on the transactions but the operations of the business. Understanding how and why these transactions occurred provides context needed to drive accurate bookkeeping and close the financial on time.

Each of these functions relies on one another to provide the insight and answers needed to successfully operate your business. If you have to start somewhere, start with bookkeeping. Without bookkeeping you will not have the relevant data needed to model for financial analysis or file your taxes.

Read Part 2 of this series where we dive into applying best practices to your revenue process and back office systems.

Or read Part 3 of this series to learn how to approach financial planning and fixing exceptions and adjustments as they happen.

Learn more about Decimal

There’s a better way to do bookkeeping. With Decimal, you can ditch the old way of doing things and get back to what matters most: running your company. Learn about how Decimal works.

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